Typically, one would expect a lender to argue that a borrower was in breach for failing to repay a note on or after its maturity date.  However, a friend recently alerted me to a case in which the lender argued that the borrower was prohibited from repaying a note after the maturity date.  Toptal, LLC v. Grosz, Nev. Dist. Ct. Case No. CV20-00555 (Oct. 11, 2023).  

The note in this case had an optional conversion right that granted the lender the right to elect to convert the note into the maker's common stock at "any time on or after the fifteenth (15th)  day prior to the Maturity Date . . .".   The parties disagreed on whether this meant that the lender had only a 15 day window in which to make an election or a window that started 15 days prior to the Maturity Date and extended forever.  

Nevada state District Court Judge James W. Hardesty, applying California law, could find no logical reason why the lender's option to elect conversion would open 15 days prior to the Maturity Date if it did not close on the Maturity Date.  Judge Hardesty also found that the promissory note's use of the phrase "on demand by the Lender" did not change his conclusion that the note is payable immediately, without demand.  Thus, he ruled that the borrower did not breach by attempting to repay after maturity without any demand by the lender.

Some have expressed concern that this ruling will adversely affect holders of convertible promissory notes that are past due.  This will be an issue when the maker is successful and the equity conversion feature is more valuable than the principal and interest that is due.